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Case #6-0011

Microsofts Xbox Gamble
The meeting between Microsoft and Capcom, a Japanese video game publisher, was going poorly. One of the Japanese game developers at the table in Capcom's Tokyo headquarters said, We know the philosophy of Nintendo. Game is toy. We know the philosophy of Sony. Game is entertainment. What is Microsoft's philosophy? Kevin Bachus, who was then director of third-party relations for Microsoft's Xbox console, replied, Game is art. Red Herring The Game of War 1 In the fall of 2001, Microsoft found itself in the unusual position of being a late entrant in an unfamiliar market as it prepared to release its Xbox console. Microsofts Xbox would compete head to head with the latest generation offerings from Nintendo and Sony. Questions abounded as the new console faced an uncertain economy and strong competition. Would the market accept the new platform that offered higher performance but at a higher price than the competition? Could Xbox attract enough well-known game titles to make consumers choose it over the competition? Could the market support three players? How would the gaming market evolve over time, and would it accommodate a broader strategy that extended beyond video games? As Microsoft prepared to launch the box, the company anticipated absorbing $2 billion in losses before attaining profitability.2 The market waited eagerly to see the results of the battle that promised to shake up the video game industry and possibly markets beyond.
Genesis of the Gaming Industry
Video games sprang from the imaginations of scientists in research labs in the late 1940s and did not reach the mainstream until arcade games became popular in the early 1970s. After
Red Herring; The Game of War, Dean Takahashi, October 15, 2001 The Economist; Extending Its Tentacles, London, October 20, 2001; Vol 361 Issue 8244
This mini-case was prepared by John Greco (T'02MBA Fellow, Center for Digital Strategies) of the Tuck School of Business at Dartmouth under the supervision of Visiting Assistant Professor Melissa M. Appleyard. It was written as a basis for class discussion and not to illustrate effective or ineffective management practices. The authors gratefully acknowledge the support of the Glassmeyer/McNamee Center for Digital Strategies, which funded the development of this case. CDS Case #02013. Version: March, 2002. 2001 Trustees of Dartmouth College. All rights reserved. For permission to reprint, contact the Center for Digital Strategies at 603-646-0899.

no. 6-0011

being rebuffed by larger arcade providers, a new start-up named Atari marketed its first video game, a simple table tennis game known as Pong, to restaurants and bars. By 1972 people wanted to play these games at home and Magnavox began selling the Odyssey, a system that included several hardwired games and had no provisions for expandability. Although cumbersome to use, as it required screen overlays to play the game, nonetheless Magnavox sold 100,000 units in Odysseys first year on the market. A number of firms, including Atari, Bally, Coleco, and Fairchild Camera & Instrument quickly rushed to compete with Magnavox by offering their own games that attached to the television set. This early stage of the TV-based video game industry, with single-game product offerings that were at best clumsy consoles with rudimentary two-dimensional effects, was characterized by a fragmented industry structure. In 1977, however, Atari again unleashed a new era in the industry. Atari introduced the first programmable home video game, the Video Computer Systemlater known as the Atari 2600. (See Exhibit 1 for a complete timeline of the industry.) The concept of programmability meant that the home video market could capitalize on the growing craze in arcade games by packaging them for home use. Users purchased cartridges with the game program burned into memory and inserted them into a slot on the console. The console was no longer constrained to playing only the games provided at the time of console purchase. It could adapt to gamers tastes and play the home versions of the latest arcade games.

Pushing the Polygons: the Hardware War Begins
As the semiconductor industry relentlessly followed Moores law, the ability to build more complicated graphics accelerators and fast 16-bit machines led to the next phase of video game evolution (16-bits referred to the type of processor and data bus controlling the system; higher numbers translated directly to better graphics, sound, and game play). Nintendo held a dominant position in the U.S. market attributed to its content and marketing prowess. Eager to find a vulnerability in Nintendos business model, competitors focused on building a better hardware platform that would enable game developers to create more realistic titles with superior graphics. The goal became to provide the highest quality hardware. NEC struck first with the TurboGrafx-16, the first 16-bit console in the U.S. in 1989. Sega followed shortly after with its own 16-bit system, Genesis. The two firms were slow to release competitive content to the market, leaving Nintendo time to launch its 16-bit Super NES in 1991. Rather than hardware superiority, this round of competition in the industry again relied on titles. The buzz comparing the Super NES and the Genesis focused not on pixels and polygons but instead on the merits of Nintendos Super Mario World versus the sequel to Sonic the Hedgehog. With continued advances in processor technology and the ability to customize components, the move to 32-bit systems was inevitable. 3DO, a startup backed by Panasonic and TimeWarner, released the 3DO console under a Panasonic label in 1993, following two years of development. In the same year Atari launched the 64-bit Jaguar in an attempt to regain its market share. By 1998 Nintendo, Sega, and newcomer Sony with its PlayStation had all released 64-bit systems considered to be the top-of-the-line standards for video game technology. Pushed into these aggressive technologies through competition with PCs, video games began to resemble home computers rather than toys. The key to success or failure was clearly in the titles available; Jaguar could not capitalize on its hardware lead because developers refused to commit resources to games for Atari and the console was discontinued. By 1995, Sega had taken what looked like a commanding lead over the Super NES, led by Sonic and its three sequels. However, the launch by Sony of the well-marketed PlayStation in 1995 vaulted it into the lead for sales of new systems.

And Then There were Three
The power of the new hardware enabled designers to do amazing new things with their games, raising the quality of graphics and game play. However, game development did not become any easier, requiring immense amounts of programming talent, testing, and imaginative themes and plots. Game designers preferred to concentrate their efforts on fewer titles but with higher quality, and thus it became impossible to support every platform.
As a result only the most popular platforms survived, and those that could not attract or entice developers were doomed. As the Nintendo-64 and the PlayStation fought each other in the marketplace, Segas new 64-bit market entry, the Saturn, found itself foundering. Rushed to market in order to launch at the same time as the Sony PlayStation, Saturns early release caught developers by surprise and at launch it suffered from a shortage of titles. New console releases attracted upgrading consumers, who judged the consoles by the availability of games. Consumers opted for the PlayStation rather than wait for titles for the Saturn. Segas subsequent release of the 128-bit Dreamcast could not offset the companys loss of credibility. Bad timing played a role as well; when Sega decided against including a light gun in its hardware package in response to the Columbine High School shootings, fans of its popular House of the Dead game went into an uproar. By 2002, Sega had exited the console business and shifted its focus to software development for other consoles. That left only two major players in the console industry: Nintendo and Sony. Their next generation 128-bit consoles were being designed when, in 1999, Microsoft announced its intention to enter the market in 2001 with its own console known as the Xbox. Originally a code name that ended up sticking into the final release, Xbox was aimed at the hard-core gamers segment of the now well-defined video game market (Exhibit 2).
Modern Video Game Value Chain
By 2001, the development of video games relied on a value chain linking game publishers, developers, console manufacturers, distributor, and retailers (Exhibit 3).

Publishers

Publishers were responsible for the finance, management, and marketing of video game titles. The publisher first sought approval from the game console manufacturer for a particular title. After receiving the approval, the publisher would front an advance for the game developers to create the game. Publishers also handled the marketing and first stages of distribution of the game, selecting the wholesaler, distributor, or retailer. Some of the publishers were vertically integrated. The costs incurred by a publisher during the development of a title typically included: 1. A license fee levied by the console manufacturer; 2. An initial payment to the game developer to fund development; 3. License fees for any brands/characters involved in the game.

Game developers

Game developers created the game, including plot lines, game play, special effects, and programming. They typically received an up-front fee to cover development costs. Developers received a royalty on the game of about 10% - 40% of the wholesale price of the product once the game sold enough copies to break even with the initial license fee.

Console Manufacturers

The power of console manufacturers in the value chain derived from their rights to approve titles and manufacture physical copies of the games. Console manufacturers generally sold the consoles at a loss but made their money on royalties. Publishers paid royalties to the console manufacturer on every copy of the game sold. Because all duplication onto physical media was done by the console manufacturer, they retained final approval rights over the titles.

Distributors

The distributor bought the games from the publisher and then sold them to retailers. This part of the chain was heavily vertically integrated. Over 80% of these distributors were owned by publishers by 2001.6

Retailers

Retailers wielded increasing power in the video game industry. Wal-Mart, Best Buy, and Toys R Us, and Electronics Boutique made up 50% of the sales in the video game market in the U.S. by the early 2000s. Exhibit 4 shows the breakdown of margins for different platforms per disk or cartridge. In recent years the market moved away from publishers owning exclusive rights to titles. By 2001, it was common for publishers to release games for multiple platforms. But console manufacturers recognized the value of an exclusive game franchise and vertically integrated to include in-house development.

Microsofts Xbox

Microsoft began to explore the possibilities for the video game market in 1999. Faced with the possibilities of market saturation in its core Office and Windows products, Microsoft looked for alternative growth markets that could leverage their previously successful Wintel model. Video games provided an avenue of proven growth. Exhibit 5 shows the U.S./world retail sales in the video game market from 1998 through 2003, along with the trends in video game
The Video Games Industry: Game over or extended play? Deutsch Bank, Jan. 11, 2001 (Global Equity Research), p. 26 7
consoles. The negative hardware trend in 2000 was believed to be a typical aspect of the industry cycle; every several years the next generation of consoles would be released, sparking a new wave of sales. In anticipation of the new platforms sales of the old platforms typically dropped off and would trigger price-cutting on the part of the manufacturers. Emerging industry trends intrigued Microsoft. The introduction of Massively Multi Player games (MMPs) heralded a new era in video gaming. Players would participate over the Internet in a continuously playing game with others from around the world. Logging on and off, players would see their positions change. In most instances, there were no limits to the number of people who could play. Sony and Verant had the most successful MMP online games at the time of the Xboxs inception in the form of their on-line role-playing game Everquest, boasting 250,000 active accounts paying $100 per year to use the service (Exhibit 6).

Getting Onboard

In 2000, when Microsoft announced its intentions to enter the video game market it was a project driven forward by the passion and determination of the project team to build a console that far outperformed anything else on the market. The Xbox required buy-in from Bill Gates and Steve Ballmer as its success depended heavily on long-term management support. Xboxs genesis lay in Microsofts desire to branch out beyond the PC desktop, but the evolution of the console was purely focused on the gaming market. Microsoft decided that although it could leverage its relationships developed through its PC experience, the resultant box would compete with the Sony PlayStation 2 rather than be a PC knock-off. Although the box would be enabled for broadband, Microsoft was conscious that marketing it as anything other than a game machine ran the risk of confusing the market. Microsoft set the ambitious target of creating a platform with 3x the performance of the PS2, the industry standard at the time. This strategy took Microsoft out of its traditional software arena as hardware design would require attention. Although Microsoft had a hardware division whose products included mice, keyboards, and game peripherals, the Xbox represented a more complicated effort. In addition to the design and testing of such a system, Microsoft would have to learn how to manage component suppliers and the release of advanced hardware. The hope was that they could minimize the difficulties in this area by envisioning a system based primarily on PC hardware. One area where Microsoft would have a strong position in the product was the game development field through its years of experience in developing and releasing its own software products including PC games. It increased its expertise further by buying two small game developers, Bungie Software Products Corp. and Digital Anvil. Additionally, Microsoft adopted a cooperative stance with game developers at terms believed to be far more favorable than those of the competing consoles. The company gave away game development kits and focus group research (its competitors typically charged

Results: Xbox vs. Rivals

The general consensus in the industry was that Microsoft, as the latecomer to the market, would showcase superior hardware relative to its two main rivals, Sony and Nintendo. The focus throughout the design process was to triple the performance of the market-leading PlayStation 2. The belief was that video game developers would support the platform that gave them the most power and flexibility to create eye-popping titles. Xbox used a customized version of Intels Pentium III as its central processing unit. Running at 733Mhz, the chip provided a tradeoff between maximum performance and minimal power usage. The Xboxs motherboard exhibited a Northbridge - Southbridge architecture similar to that of a PC motherboard. Nvidia provided the graphics processor for the Xbox, a derivative version of its then industry-leading GeForce 3 core chip set for PCs known as the NV2A. Considered significantly superior to the PS2s custom graphics processor, the NV2A was designed as the differentiating component against the competitor. The graphics engine of the PS2 was generally considered to be difficult to program. Microsoft believed that their Nvidia based system would provide an advantage against the PS2. Exhibit 7 shows a side-by-side comparison of the Xbox, Nintendos GameCube and Sonys PS2. Other functions included Dolby audio processors, again a first in the video game class. A built-in Ethernet connection would allow users to network the Xbox first with other Xboxes and, eventually, the Internet. A DVD-ROM drive acted as the games storage and could be used to watch DVD videos with a $30 purchase of an upgrade kit. The Xboxs features came at a price. Unlike its competitors, it included a hard drive. While this delighted developers who could access the faster drive instead of slow CD-ROM based data, it added significantly to the cost of the Xbox. (Some developers, however, complained that the hard drive included was too slow and hoped for faster versions over time.) Some analysts felt that, despite their use of industry standard components from the PC market, Microsoft would never be able to drive their costs down to the point where $299 was a profitable price point, particularly because the history of game consoles showed significant price erosion as the market matured. Sony and Nintendo opted for a more cost sensitive approach in the design of their boxes. Both companies employed custom processors developed specifically for their consoles, and accessed the slower but cheaper DVD-ROM instead of using a hard disk drive in an effort to reach optimal price-performance points. Nintendo opted for the smallest package of the trio, a 4.3h x 5.9w x 6.3d box designed with transportability in mind. Nintendo believed that gamers would carry their units with them when they traveled. They did not include a DVD-ROM drive that could play video DVDs, unlike their two rivals. Instead they included a proprietary CD-ROM derivative.

Game titles

By the time of Xboxs launch, Sony had 300 developers working on games.11 Microsoft was successful in convincing 200 developers to adopt the Xbox platform, but it would be starting the race at a disadvantage.12 Since the Xbox would be launching simultaneously with the Nintendo GameCube, many buyers would be evaluating their purchases based on quantity and quality of titles. Microsoft appeared to have the edge in available titles, expecting to have 40-45 titles available by the end of 2001 versus only 20 for the GameCube.13 However, GameCube had more recognizable game franchises including Star Wars Rogue Leader and the next installment in the Super Mario Brothers saga, Luigis Mansion. Furthermore, in an attempt to move away from violence-based games, Nintendos top inhouse game developer of Mario Bros. fame released Pikmin in December 2001. The game endeavored to help players appreciate the harmony in nature, in part to counter the violent culture of the game industry.14
Console Manufacturers, Take Your Marks
When Microsoft began the Xbox project they had considered launching the system in the fall of 2000. That plan was adjusted when they decided that it was a requirement for Xbox to have 3x the performance of the PS2. Hardware development at this level of complexity was a new discipline for Microsoft. It required coordinating with chip suppliers such as Nvidia, Micron, and Intel, as well as the Singapore-based contract manufacturer, Flextronics International Ltd., that would manufacture the Xbox. Rumors abounded that Microsoft was having problems with the Intel designed motherboard and would not be able to ship in sufficient quantities to meet the expected demand. The new launch date was set at November 15, 2001, more than a week behind the planned November 5 launch date of the Nintendo GameCube. The ramifications of delay were potentially very serious as the PS2 would have a years head start. Any further delays would have jeopardized selling for the Christmas season, which could have been catastrophic. Microsoft was encouraged by Nintendos decision to delay their release of the GameCube until November 18, citing the fact that they needed the extra time to ensure there were enough games available on console release. This gave Microsoft a three-day head start on the GameCube, an important psychological victory and an early win in what promised to be a long and hard-fought battle.

Round one goes to

When the dust had settled after the initial product releases, Xbox found itself with a slight edge over the GameCube (Exhibit 8). Both boxes received positive reviews and sold well on

Ibid Ibid 13 Banc of America Securities; Equity Research: Video Game Industry Update; November 6, Pereira, Joseph. Success of Nintendo GameCube May Rest on Pikmin, Wall Street Journal, January 25, 2002. Tuck School of Business at DartmouthGlassmeyer/McNamee Center for Digital Strategies 11
the market. At the same time, Sonys PS2 sales increased by 177% versus the prior month, in the more competitive market environment. Microsoft and Nintendos in-house titles dominated initial software sales. Some titles common to both platforms such as Madden NFL 2002, broke into the top-10 sellers for November. Both companies expected a profile closer to that of Sony over time (Exhibit 9).
but the fight has multiple rounds.
The initial launch of the Xbox looked to have met Microsofts expectations. They hoped to ship between 1.1 1.5 million hardware units by the end of 2001. By December 7, 2001, they had already shipped 1.1 million Xbox units to retailers and planned to ship 300,000 more units by the end of the year. Nintendo also was shipping well, expecting that by the end of the year they would have shipped approximately 1.5 million units in total. Nintendo and Sony saw their previous generation systems declining by 56% versus the same period the year prior. Nintendo and Microsoft had dented Sonys dominance; each expected to capture between 16-17% of the total existing consoles in the U.S. by the end of the year. But clearly there would be many issues facing Microsoft as it moved forward in the market. For example, reports of service issues with the Xbox arose as some irate customers complained of poor quality control and even poorer Microsoft service response.15 Microsoft outsourced customer support to contractors Harte-Hanks and Sykes, raising questions about whether or not over the long term Microsoft could afford to maintain such a model and risk negative association with the brand. Microsoft faced the continual challenge of expanding titles and maintaining developer relationships. While early reports indicated that Microsoft was off to a good start in terms of signing on titles and making it easy for developers to work with them, Microsoft still lacked a signature franchise title. Furthermore, it was not clear what role broadband would play in the evolution of the product strategy. Microsoft believed that online gaming would represent the wave of the future and would bring newly evolving titles, game play, and revenue streams into the equation. While Microsoft designed the Xbox first and foremost to be the top performing graphics machine on the market, the addition of broadband connectivity as a standard feature raised eyebrows in the PC and access industries. Was the Xbox a Trojan horse, an attempt to push a PC into the home disguised as a game machine?16 Could the Xbox evolve into the hub of a home network, representing the home gateway that would be the on-ramp to the Internet when broadband became ubiquitous? Some suggested that the Xbox would become the living rooms anchor tenant to the Internet and deliver video and music services beyond games; rumors circulated that a home entertainment hub called the HomeStation was in the works.17 In early 2001 Microsoft

Associated Press, Users Complain of Broken Xboxes, Long Repair Waits, Allison Linn, January 4, 2002 Telephony; Microsofts Xbox as Broadband Trojan Horse, Kevin Fitchard, Chicago November 12, The Economist; Extending Its Tentacles, London, October 20, 2001; Vol 361 Issue 8244 Tuck School of Business at DartmouthGlassmeyer/McNamee Center for Digital Strategies 12
announced its UltimateTV partnership with DirecTV. Ultimate TV allowed users to record television programming to a hard drive, similar to services from competitors such as ReplayTV and TiVo. Together Xbox and Ultimate TV could combine to control access to the home and present an easy installation and delivery medium to users. However, Microsofts dissolution of its Ultimate TV division called these possibilities into question.18 Releasing the Xbox in Japan presented another challenge. Tastes between the American and Japanese markets in terms of game content were quite different. Microsoft would be competing on its rivals home turf where Sony and Nintendo had spent years understanding and developing for the Japanese market. Finally, Sony was not going to sit idly by as the GameCube and Xbox passed its capabilities. Analysts believed that Sony would look to come out with a PS3 to rival the Xbox, and the high degree of customization in the existing PS2 implied that Sony had the potential to make serious cost reductions over time which would be reflected in the console price. Following September 11th and the economic slowdown in the United States, many observers wondered if the rules had suddenly changed. Did these events bode well or ill for the industry? Some wondered if the suddenly more sober American society, shocked by world events, would turn away from video games and some of the violent game titles that proved so popular in the past. Others felt the recession would actually improve things for the games market. Games may even do better in bad economies, said New York University professor of media culture Douglas Rushkoff, We can't have a vacation this year, kids, but here are two cartridges. 19 Following the November launch, the Xbox team at Microsoft had little time to bask in their achievements; instead they had to map out their next steps to ensure this gamble would pay off in the long run.
Buckman, Rebecca. Microsoft Corp. Disbands Division Making UltimateTV, Wall Street Journal, January 23, 2002 Red Herring; The Game of War, October 15, 2001 13

Exhibit 1: Video Game Timeline (Source: www.videogames.com)
1951 A Loral engineer, Ralph Baer, proposes adding an interactive game to their latest television but is rebuffed by management. 1961 Spacewar is developed at MIT as a way to demonstrate the capability of a Digital PDP-1 mainframe computer. 1968 Ralph Baer, working for New Hampshire-based Sanders Associates, develops and patents the first interactive TV game. 1970 Magnavox licenses Baers game. 1972 Nolan Bushnell founds Atari and hires a programmer to create a table tennis game unit for use in restaurants and bars. Pong is released and marketed by Atari and becomes an instant hit. Magnavox releases the Odyssey, the first home video game and sells 100,000 units. Facing lawsuits from Magnavox, Atari settles and buys the right to manufacture video games. 1976 Coleco Telstar released. Fairchild Instrument and Camera releases Channel F, the first programmable game console. Atari sold to Warner Communications for $28M. 1977 Bally releases Bally Professional Arcade. Atari introduces its cartridge-based Video Computer System, generally known at the Atari 2600. 1978 Nintendo Playing Card Company of Japan releases its first arcade game. Magnavox releases Odyssey Mattel releases Intellivision. 1982 Colecos Colecovision released. Atari releases Atari 5200 system. 1985 NES released by Nintendo in New York. 1986 Sega releases its Sega Master System. NES released nationwide. Atari releases its 7800 game console in an attempt to return to the market that it had once pioneered.
Exhibit 1: Video Game Timeline (Source: www.videogames.com) (continued)
1989 NEC releases Tubografx 16. Sega releases Genesis. 1991 Nintendo releases Super-NES (SNES). 1993 Atari releases Jaguar. Matsushita releases 3DO 1995 Sega releases Saturn. Sony releases PlayStation. 1996 Nintendo releases N64. 1999 Sega releases Dreamcast. 2000 Sony releases PlayStation2. 2001 Sega exits console business. Microsoft releases Xbox. Nintendo releases GameCube.
Summary of surviving manufacturers:20
Merrill Lynch, Toy Industry Commentary: Video Games Wont Kill the Traditional Toy Business. August 15, 2001.
Exhibit 2: Video Game Segments Segment name Description

Hard core

4-5 million people Often male ages 34-45 Owns multiple game consoles (latest generation) Purchases about 20 titles over a consoles lifetime Hit driven 3-4 million people Focuses on sports games and proven hits Owns one or two game consoles Purchases about 12-15 titles/console Mass market 25-30 million people Owns one platform (generally late adopters) Purchases proven hit titles Youth Approximately 8 million people Ages 8-14 Entry point for gamers into the industry, uses the portable consoles such as Game Boy in addition to a main console. Females Market size unclear Current platforms and titles do not appear to appeal to them Source: Banc of America Securities Research Report: A Tale of Two Industries (May 2001)

Exhibit 7: Console Comparison
Microsoft Xbox Retail Price (January 2002) Cost Estimate Processor Graphics $299 $Mhz Intel Pentium III 233MHz Nvidia graphics processing unit GeForce 3 derivative Dual programmable DSPs, 3 fixed function DSPs. 256 2-D voices and 3-D voices. Real time Dolby Digital Decoding 64Mbyte, 200MHz clock/400MHz data DDR SDRAM 8-10Gbyte hard disk drive, dual memory cards, DVDROM drive 4 USB derived controllers 10/100 Ethernet included S-video and component video, analog and digital audio Nintendo GameCube $199 $175 485MHz IBM PowerPC Gekko 203MHz ArtX/ATI Flipper with 24Mbit embedded multibank DRAM 16-bit DSP, 64 channels Sony PlayStation 2 $299 NA 300 MHz MIPS Emotion Engine 147Mhz Graphics Synthesizer with 4Mbit embedded DRAM 48 channels

Memory

Mass Storage
Controller Network Other features
24Mbyte, 405-Mhz multibank DRAM, 16Mbyte, 81MHz SDRAM Memory Card and Secure Digital card, proprietary DVD-ROM derivative Four, proprietary Optional modules to be released Composite and component video, analog and digital audio
32-Mbyte PC800 Direct Rambus DRAM Dual memory cards, DVD-ROM drive
Two proprietary Optional modules to be released 2 USB ports, one IEEE-1394 port, 1 PCCard, composite, Svideo, and component video, analog and digital audio.
Source: EDN Magazine Cutting Edge Consoles Target the Television, Dec. 20, 2001 by Brian Dipert
Exhibit 8: Hardware Sales for Next-Generation Consoles
US Retail sales of 32/64 bit and Next Generation Consoles Units in millions GameCube Xbox PS2 Through October 0 4461

17,772

25,483

November 01

Source: Banc of America Securities November Video Game Industry Update, January 3, 2002 Volume 9
Exhibit 9: Software Sales For Next-Generation Consoles
Top Xbox Software Publishers ($Millions)
Publisher November 01 Revenue November 01 platform share
Microsoft $46.9 54.4% Electronic Arts 12.2 14.2% Tecmo 9.7 11.2% Activision 5.2 6.0% Midway 2.7 3.1% Source: Bank of America Securities November Video Game Industry Update, January 3, 2002 Volume 9 Top 10 November 2001 Xbox titles (units in 000)

Title Publisher Units Sold % Share
Halo Microsoft 357.0 Project Gotham Racer Microsoft 212.7 Dead of Alive 3 Tecmo 196.6 NFL Fever 2002 Microsoft 165.9 Madden NFL 2002 Electronic Arts 136.5 Oddworld: Munchs Oddysey Microsoft 130.3 Tony Hawks Pro Skater 2X Activision 102.8 NBA Live 2002 Electronic Arts 49.0 Shrek TDK Mediactive 45.9 Amped: Snowboarding Microsoft 45.3 Source: Bank of America Securities November Video Game Industry Update, January 3, 2002 Volume 9 Top GameCube Software Publishers ($Millions)
Publisher November 01 Revenue
20.5% 12.2 11.3 9.6 7.9 7.5 5.9 2.8 2.6 2.6
November 01 platform share
Nintendo $24.2 40.8% LucasArts 13.3 22.4% Electronic Arts 6.2 10.5% Sega 5.2 8.8% Acclaim 4.2 7.0% Source: Bank of America Securities November Video Game Industry Update, January 3, 2002 Volume 9
Exhibit 9: Software Sales For Next-Generation Consoles (continued)
Top 10 November 2001 GameCube titles (units in 000) Title Publisher Units Sold Luigis Mansion Nintendo 361.7 Star Wars: Rogue Squadron II LucasArts 270.5 Wave Race: Blue Storm Nintendo 126.8 Tony Hawks Pro Skater 3 Activision 108.0 Madden NFL 2002 Electronic Arts 105.9 Super Monkey Ball Sega 84.5 NHL Hitz 2002 Midway 31.1 All Star Baseball 2K2 Acclaim 26.6 Crazy Taxi Acclaim 19.9 Batman Vengeance Ubisoft 19.8 Source: Bank of America Securities November Video Game Industry Update, January 3, 2002 Volume 9 Top PS-2 Software Publishers ($Millions) Publisher YTD Revenue YTD platform share

% Share

30.1% 22.5% 10.5 9.0 8.8 7.0 2.6 2.2 1.7 1.6

Nov. 01 platform share

Electronic Arts $274 30.5% 24.8% Konami 73.5 8.2 16.3 Take-Two 69.7 7.8 10.4 Activison 31.1 3.5 9.0 THQ 37.5 4.2 6.6 Sony 120.1 13.4 5.2 Source: Bank of America Securities November Video Game Industry Update, January 3, 2002 Volume 9 Top 10 November 2001 PS-2 titles (units in 000) Title Publisher

Units Sold

Metal Gear Solid 2 Konamai 598.2 13.8% Grand Theft Auto 3 Take-two 364.8 8.4 Tony Hawks Pro Skater 3 Activision 346.9 8.0 Madden The Patriots should just Electronic Arts 234.5 5.4 take a knee NFL 2002 WWF Smackdown THQ 231.3 5.3 NBA Live 2002 Electronic Arts 188.2 4.3 Bond: Agent Under Fire Electronic Arts 152.5 3.5 Crash Bandicoot: Cortx Vivendi 96.9 2.2 Ace Combat 4 Namco 93.6 2.2 Devil May Cry Capcom 89.2 2.1 Source: Bank of America Securities, November Video Game Industry Update, January 3, 2002 Volume 9
Tuck School of Business at DartmouthGlassmeyer/McNamee Center for Digital Strategies 23